European companies have no intention of decoupling from China

Covid-19 forced much of the West to fundamentally rethink the risks of over-reliance on Chinese investment and supply chains.

The EU (and the newly-EU-free UK) struggled to access medical equipment and personal protective equipment in the early days of the pandemic after China nationalized production and exports. That made clear the risks of relying on just one country for critical goods. Covid-19 also showed China’s increasing willingness to use economic coercion as a foreign policy tool: No country in Europe wanted to be the next Australia, whose coal ships were stranded for nine months in Chinese waters as Beijing and Canberra faced off over calls for a World Health Organization investigation into the origins of the coronavirus.

Meanwhile, European companies in China felt stuck between a rock and a hard place. They faced real constraints in China, including intellectual property theft and “negative lists” barring them from certain industries. But the climate improved for them as the Chinese government liberalized the economy, and China was the only major economy to grow in 2020. Back home, politicians were calling on them to decouple from China and shift their supply chains elsewhere.

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